smart spending: credit and budgeting glow online curriculum session 2 glow foundation 2010

Smart Spending: Credit and Budgeting

Glow Online Curriculum Session 2

Glow Foundation2010

What We Will Cover in this Session

Credit

Credit Score

Credit Cards

Building a Spending Plan

Budgeting

Credit Match Quiz __ Annual Fee a) A company that gathers information on

consumers who use credit.

__ Annual Percentage b) A document issued by an independent credit Rate (APR) agency that contains information concerning a

loan applicant’s credit history and current credit standing.

__ Credit Bureau c) An amount a credit card company charges a credit card holder to use the card for a year. __ Credit Report d) A rating system that indicates a person’s

creditworthiness based on a number of criteria. __ Credit Score e) The total amount of money borrowed not

including interest of service charges.

__ Principal f) A measurement used to compare different loans which takes into account the loan’s interest rate, term, and fees.

Credit Quiz Answers _c _ Annual Fee a) A company that gathers information on consumers who use credit.

_ f _ Annual Percentage b) A document issued by an independent credit Rate (APR) agency that contains information concerning a

loan applicant’s credit history and current credit standing.

_a_ Credit Bureau c) Amount a credit card company charges a card holder to use the card for a year.

_ b_ Credit Report d) A rating system that indicates a person’s

creditworthiness based on a number of criteria. _d_Credit Score e) The total amount of money borrowed not

including interest of service charges.

_ e _ Principal f) A measurement used to compare different loans which takes into account the loan’s interest rate, term, and fees.

Credit

THINK ABOUT:

1. What is credit?

2. What are the benefits of having credit?

3. What are the risks of having credit?

Credit

Credit is the ability to BORROW money.

Benefits: Easier to rent an apartment/purchase a home Get a lower interest rate from lenders Financial flexibility – you can buy now and pay

later

Risks: Easy to overspend You can hurt your credit score/history if you

can’t make payments With bad credit, it can be hard to get a loan or a

good interest rate in the future

Credit

How can you start to build good credit?

Good Credit Signs

Paying at least the minimum balance

Paying on time

Making all payments

Staying within your credit limit

Bad Credit Signs

Paying less than the minimum balance

Paying late

Missing payments

Exceeding your credit limit

What are signs of bad credit?

Establishing credit is important for borrowing money later. No credit is not the same as good credit!

Credit

How do lenders decide whether to lend you money?

5 C’s of Credit:

1. Character

2. Capacity

3. Capital

4. Collateral

5. Conditions

Credit Score

Having good/bad credit affects your ability to:

Get a credit card Purchase/rent a home or apartment Get a lower interest rate from lenders Borrow money

A credit score numerically indicates how strong your credit is.

Credit Score

Credit Score: A number between 300-900 that indicates your creditworthiness.

• The higher the number, the stronger your

score.

• Points are earned based on factors like your payment history, the length of your credit history, and account balances.

Credit Report

What is a credit report?

A document issued by an independent credit agency that contains information concerning a loan applicant’s credit history and current credit standing.

How are credit reports like report cards?

Credit Cards

Credit cards allow you to purchase something TODAY and pay it off over time.

Credit cards are not the same as debit cards

Credit Cards Debit Cards

Payment Pay Later Pay NOW

Interest Charges Yes, if there is a remaining balance

No

Pros Potential to get freebies / points

Prevent major debt

Cons Additional fees Fees if you overdraw

Credit Cards

Before getting a credit card, shop around. Know:

Are there annual fees or other regular charges? What is the credit limit? What is the interest rate? Is it fixed or variable? What is the APR?

ANNUAL PERCENTAGE RATE: Measurement

that takes into account the interest rate, term, and fees

Are there benefits to getting this card (points, freebies, etc)?

Credit Cards

Original Balance

APR Monthly Payments

Number of

Monthly

Payments

Term (Years)

Total Amount

Paid

$1000 18% Minimum 87 7 $1,516

$1000 18% Minimum + $25

26 2 $1,187

$1000 18% Minimum +50

16 1 $1,119

Pay as much of the balance as possible to reduce the term and amount of interest paid

Credit Cards

Credit Card Tips:

Use cash or debit cards to daily expenses Know how you are going to pay for your credit card

purchases before you start spending Get a card with low interest and pay as much of the

balance as possible Pay on time Don’t spend more than you have. Stay within your

budget. Don’t exceed your credit limit Others?

Spending Plans / Budgeting

What should you pay FIRST to make your monthly income last?


Pay your monthly bills

Set aside money you’ll need for your weekly and day-to-day expenses

Put money into savings

Set aside money for larger expenses

If you can begin to earn more, increase the amount you save as much as you can

Set aside money for your major future goals


Creating a Daily Spending Diary

You should have receipts or notes from last week’s spending (the previous session’s homework was to save receipts for a week. Write down the days of the week and log what you spent money for and how much on each day. Categorize expenses by fixed [regular monthly expenses you have to pay, like rent], flexible [expenses that vary, like texting usage], and discretionary [things you can do without]. Calculate the subtotal for each category and then total the amount spent in the last week


Creating a Spending Plan

Now use this record to plan your spending for the next month. Add things that you know are coming up, and add in the next week the things you missed. Don’t forget to add savings! Also categorize these expenses by fixed [regular monthly expenses you have to pay, like rent], flexible [expenses that vary, like texting usage], and discretionary [things you can do without].

Calculate the subtotal for each category and then total the amount you plan to spend in the next month.

You now have the start of a spending plan!

Recap of what we have covered

Credit

Credit Score

Credit Cards

Building a Spending Diary and Plan

Budgeting

Homework: Get ready to apply

Spend 15 minutes exploring the

FAFSA website (www.fafsa.ed.gov)

Be sure you go to this site to learn

about financial aid. The service

should be FREE

www.fafsa.ed.gov = it’s free!

www.fafsa.com = they charge!

Next Session

Will cover FAFSA and the

advantages of applying by March of

your Senior school year to qualify

for ALL KINDS of great financial aid

from the government and colleges.

smart spending: credit and budgeting glow online curriculum session 2 glow foundation 2010

Documents

credit cards credit

credit score credit

current credit

credit reportd

credit scoree

goodbad credit

credit reports

credit scorehistory